DFK Gooding Partners
November 12, 2024
Did you know that the Australian Taxation Office (ATO) disallowed over 6 billion dollars’ worth of deductions in the last financial year? A significant portion of these disallowed claims resulted from inadequate record-keeping. As tax time approaches, it’s essential for taxpayers to understand what records are needed to substantiate claims and how to store them properly. Clear and accurate record-keeping not only reduces the risk of an ATO audit but can also save time and stress when filing returns.
In an effort to dispel common myths and improve transparency, the ATO has issued guidelines that cover everything from work-related expense records to specific deduction methods. Here’s a detailed breakdown of the ATO’s guidance to ensure your deductions are compliant and well-documented.
Work-Related Expense Claims: Understanding Essential Evidence
Claiming work-related expenses can provide valuable deductions, but only when claims are backed by proper evidence. In most cases, a bank or credit card statement alone won’t be enough. The ATO requires taxpayers to maintain detailed records, typically a receipt, that clearly shows the supplier, the cost, the date of purchase, the date the document was issued, and a description of the goods or services.
- Evidence Requirements for Higher Claims: If your total work-related expense claims exceed $300, every single expense must be supported by written evidence, typically a receipt. This is important, as claiming without records may lead to deductions being denied or an audit.
- Small Claims, Big Responsibility: For total claims of $300 or less, written evidence like receipts may not be required, but you must still document how you calculated these expenses. Keep in mind that these deductions should still follow ATO’s “three golden rules”:
- You paid for the expense yourself, without reimbursement.
- The expense is directly related to earning your income.
- You have supporting records to substantiate it.
By meeting these standards, taxpayers can ensure their claims align with ATO requirements and avoid complications during tax season.
Storing Records Efficiently: How to Keep Everything in One Place
Proper storage of records can save taxpayers both time and hassle during tax time. The ATO encourages a proactive approach: plan ahead, decide which expenses you’ll claim, and store records securely in one spot. Keeping receipts and records well-organized is crucial in case of a tax audit or for reviewing your claims.
- Digital and Physical Storage: The ATO allows for records to be stored in a variety of formats. You may choose paper copies, electronic files, or even high-resolution photos of receipts. For electronic records, any storage device or app is suitable, as long as files are backed up regularly to prevent data loss.
- Using the ATO’s myDeductions Tool: To simplify storage, the ATO’s myDeductions tool (available on the ATO app) allows taxpayers to store digital copies of receipts in one secure place, reducing the risk of misplacing them and keeping everything accessible at tax time.
This easy access can help streamline the claims process and ensure you have all necessary documentation ready if the ATO requests verification.
Working from Home Deductions: Fixed Rate vs. Actual Cost Methods
With the rise of remote work, working from home deductions have become increasingly popular. The ATO offers two methods to calculate these deductions: the fixed rate method and the actual cost method. Each method has its own record-keeping requirements, so it’s important to understand which option best fits your situation.
- Fixed Rate Method: This method provides a simpler way to claim a deduction. Taxpayers using this option must record the actual hours they worked from home over the entire financial year. In addition, a record of each additional expense included in the fixed rate (e.g., phone bills, electricity) is needed.
- Actual Cost Method: For those wanting to claim a deduction based on their exact costs, the actual cost method requires more detailed documentation. Taxpayers must keep records of all additional running expenses and any depreciating assets used, such as office furniture. Importantly, they need to provide documentation showing how they calculated work-related usage.
Knowing which method to use and keeping appropriate records can maximize your deduction while ensuring compliance with ATO regulations.
Car Expense Deductions: Choosing the Right Deduction Method
For work-related car expenses, the ATO provides two deduction methods: the logbook method and the cents-per-kilometre method. Choosing the right option depends on your travel patterns and record-keeping preferences.
- Logbook Method: The logbook method requires taxpayers to maintain a logbook showing their work-related trips over a continuous 12-week period, representing typical travel throughout the year. This logbook remains valid for up to five years if travel patterns remain consistent. In addition to the logbook, receipts for fuel, maintenance, and repairs are needed to calculate the deductible portion of car expenses accurately.
- Cents per Kilometre Method: Simpler but limited, this method allows taxpayers to claim a set rate per kilometre, covering all eligible expenses such as fuel, maintenance, and depreciation. The maximum allowable distance is 5,000 kilometres per vehicle, per financial year. Keep in mind, to claim car expenses, the taxpayer must own or lease the vehicle, the travel must be work-related, and expenses must be personally incurred without reimbursement.
By understanding these two methods, taxpayers can determine which one best suits their needs and keep records accordingly to ensure compliance.
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